Renewable energy RD&D expenditure and CO2 emissions in 15 European countries

Purpose – Renewable energy (RE) is an important component to the complex portfolio of technologies that have the potential to reduce CO2 emissions and to enhance the security of energy supplies. Despite RE's potential to reduce CO2 emissions, the expenditure on renewable energy research, development, and demonstration (RERD&D) as a percentage of total government energy research, development, and demonstration (ERD&D) investment remains low in developed countries. The declining ERD&D expenditure prompted this research to explore the relationship between CO2 emissions per capita and RERD&D as opposed to ERD&D. Design/methodology/approach – An econometric analysis of annual CO2 emissions per capita during the period 1990-2004 for the 15 pre-2004 European Union (EU15) countries was carried out. It was hypothesized that the impact of RERD&D expenditure on the reduction of CO2 emissions would be higher than that of ERD&D expenditure, primarily due to several RE technologies being close to carbon neutral. Country-level gross domestic product per capita and an index of the ratio between industry consumption and industrial production were introduced in the analysis as proxies to control for activities that generate CO2 emissions. A number of panel data econometric models that are able to take into account both country- and time-specific unobserved effects were explored. Findings – It was found that random effect models were more appropriate to examine the study hypothesis. The results suggest that expenditure on RERD&D is statistically significant and negatively associated with CO2 emissions per capita in all models, whereas expenditure on ERD&D is statistically insignificant (ceteris paribus). Originality/value – The findings of this paper provide useful insight into the effectiveness of RERD&D investment in reducing CO2 emissions and are of value in the development of policies for targeted research, development, and demonstration investment to mitigate the impacts of climate change